The Federal Reserve Bank of New York today released Evaluating the Relative Strength of the U.S. Capital Markets—the latest article in its series Current Issues in Economics and Finance.
Recently, the competitive position of U.S. capital markets has become an increasing concern to policymakers and the business community. Many have pointed to the decline in the number of foreign initial public offerings on U.S. exchanges as evidence of the U.S. equity markets’ diminishing appeal. While acknowledging the fact of the decline, author Stavros Peristiani argues that the trend is not necessarily evidence of a decrease in U.S. competitiveness. Instead, he attributes the decline in foreign IPOs to factors that are similarly affecting exchanges worldwide, such as the tech sector’s boom-and-bust cycle and technological gains made in competing financial markets.
Clearer evidence of deterioration can be found in the U.S. bond market, “where some signs of eroding U.S. strength are showing,” says Peristiani. He points out that in 1995, the U.S. bond market issued about double its European counterpart, but today the Eurobond market leads the U.S. bond market in corporate bond issuances. According to the author, major changes to the European financial system throughout the 1990s, such as financial sector liberalization, the emergence of the euro and bank disintermediation, have brought about this shift.
Stavros Peristiani is an assistant vice president in the Banking Studies Function of the Research and Statistics Group.